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01-05-2024
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An Australian importing company need to pay 3.5m USD in two years’ time for ordered purchases.
The current spot rate is AUD / USD 0.6413 / 0.6479 . Australian interest rates are currently at 4.35%
p . a . and U .S . interest rates are at 5.5% p . a . The net interest rate spread in both countries is
1.75% (read this as the borrowing rates are 1.75% higher than the given investment rates above).
Design a money market hedge which will remove the FX risk faced by the company, yet not
altering the timing of the payment. Clearly show the AUD cash flow in the future.

Answer :

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